Consumer, Civil Rights Advocates Welcome Key First Step to Stopping the Debt Trap, Promise to Keep Up the Fight

WASHINGTON, D.C. – Today, consumer and civil rights advocates from around the country representing the Stop the Debt Trap campaign welcomed the Consumer Financial Protection Bureau’s (CFPB) new rule to limit short-term payday and car-title lenders’ ability to trap borrowers in an endless cycle of debt.

The payday lending rule will result in fewer families falling into financial ruin. At the heart of the rule is the common sense principle that lenders check a borrower’s ability to repay before lending money. While praising the CFPB for pushing to stop the debt trap, the coalition calls on the Bureau to build on this progress by quickly working to develop regulations to protect consumers from abusive long-term, high-cost loans. Also, strong state laws, such as rate caps, must continue to be defended and enacted. [Additional background at bottom of release]

Representatives from the Stop the Debt Trap campaign released the following statements:

“This new rule is a step toward stopping payday lenders from harming families who are struggling to make ends meet. It will disrupt the abusive predatory payday lending business model, which thrives on trapping financially distressed customers in a cycle of unaffordable loans,” said Mike Calhoun, President, Center for Responsible Lending. “Today’s rule release was years in the making, and it wouldn’t have been possible without the tireless effort of community and faith leaders, consumer and civil rights advocates, and countless people across the country who organized and worked hard to make their voices heard. We will continue to fight for safeguards that protect families from abusive long-term predatory loans and for state interest rate caps for all loans at reasonable levels of no more than 36 percent.”

“Payday and car title lenders profit from repeatedly dragging hard-pressed people deeper and deeper into debt, and taking advantage of families when they are financially vulnerable. Curbing the ability to push loans that borrowers clearly cannot repay is a key protection, and enshrining and enforcing this rule as federal policy should let Americans keep billions of hard-earned dollars. But more needs to be done to end lending abuses, and we will keep working alongside community leaders and advocates from around the country to fight for interest rate caps, and reforms for predatory longer-term loans,” said Lisa Donner, Executive Director, Americans for Financial Reform.

“Clearly more needs to be done to rein in these uniquely unscrupulous lenders, for example, states can push for interest rate caps to complement the CFPB’s rule and play an even greater role in ensuring consumers do not fall into debt traps. But today’s rule is a step in the right direction, but more can certainly be done to close loopholes and provide more robust oversight, given that a vast majority of Americans support oversight and rules that help protect consumers,” said Janet Murguía, President and CEO, UnidosUS.

“Payday lending is bad for many consumers, but like many predatory scams, it invariably ends up as a weapon against the disadvantaged communities that are least able to bear its terrible burden. It uses the lure of quick cash to trap struggling families in a cycle of debt and slowly drain them of what little money they have. President Trump and Congress should get on the side of civil rights advocates, the religious community, consumer organizations, and the public at large by supporting and strengthening the CFPB’s new rules on payday lending,” said Vanita Gupta, president and CEO, The Leadership Conference on Civil and Human Rights.

“For millions of Americans living paycheck to paycheck, seeking out a loan in a time of need shouldn’t end in financial disaster. The rule is an important step that starts the process of ending the nightmare of spiraling debt for so many consumers,” said Michael Best, Director of Advocacy Outreach at Consumer Federation of America. “But more steps need to be taken by the CFPB and states to protect consumers from the debt trap and stamp out abusive lending practices. We urge states to act quickly to build on this rule with interest rate caps.”

“The consumer watchdog’s payday loan rule takes an important first step by inhibiting lenders from pushing loans that people cannot afford to repay. But state interest rate caps remain critically important as the most effective way to prevent predatory lending,” said Lauren Saunders, Associate Director at National Consumer Law Center.

“People need financial services that build wealth. Payday and car title lenders do the opposite, they bleed dry families and communities that have little to begin with,” said George Goehl, executive director of People’s Action. “At its best the Consumer Financial Protection Bureau is the people’s agency, created to protect everyday people from consumer financial abuse and fraud. We fought to create the CFPB and we are encouraged that they are taking a first step to rein in the worst abuses of this industry. Our members are going to continue fighting for strong consumer protections nationwide”

“With little accountability for their actions, payday lenders have long preyed upon communities of color and drained them of their hard-earned savings. This CFPB rule establishes a much-needed set of transparent responsibilities for lenders and basic rights and protections for borrowers. We will work to defend and strengthen this rule, so Americans face fewer burdens in establishing financial security,” said Hilary O. Shelton, NAACP Washington Bureau Director and Senior Vice President for Policy and Advocacy.

“Payday and auto-title lenders may claim that they are providing a “safety net” to struggling families, but their business models often rely on keeping people in debt, not helping them build assets. For too long, these lenders have profited from predatory business practices that endanger consumers’ economic security. The Bureau’s rule is a commonsense step to help ensure that when a lender makes a short-term loan, the consumer has a reasonable chance of paying it off instead of falling behind,” said Suzanne Martindale, Senior Attorney, Consumers Union.

“This rule is a no-brainer. It simply requires lenders to determine whether a consumer has the ability to repay a loan without hardship or re-borrowing – a requirement that will help stop the debt trap and reduce defaults. The payday lending industry preys on the most vulnerable among us. Now, with this new rule, millions will be spared years of agony perpetrated by payday lenders looking to make a quick buck. Payday lenders have spent millions of dollars currying favor with powerful Washington politicians and they will do whatever it takes to kill this rule and keep this extremely lucrative predatory racket humming. We owe it to every American to remain vigilant and fight any effort in Congress to repeal this rule. We simply cannot allow the debt trap to continue,” said Karl Frisch, Executive Director of Allied Progress.

“The CFPB’s new protections are a good start at helping consumers avoid the long-term pain of payday loan debt traps,” said Linda Sherry, Consumer Action’s director of national priorities. “Finally those who peddle payday, car title & installment loans will be held accountable for their predatory actions masquerading as debt relief.”

“After nearly four years of research, stakeholder and community engagement, including the consideration of more than a million public comments, today’s announcement by the Consumer Financial Protection Bureau moves us one step closer towards ending to debt trap perpetuated by payday and auto-title lenders,” said Andrea Levere, President of Prosperity Now. “We applaud the CFPB for crafting and releasing rules that provide consumers everywhere with much-needed federal protections against a predatory industry that is known for charging high fees and triple-digit interest rates. As the rule now moves towards implementation, we call on Congress to persevere and protect the historic measures the CFPB has put forward today.”

“By issuing this rule, the Consumer Financial Protection Bureau has made it more difficult for payday predators to trap people in financial quicksand. Unfortunately, the payday lending industry is notorious for finding creative ways to get around rules and separate hard-working people from their money. We look forward to continuing to work with the CFPB, Congress, and with state governments to ensure enforcement of this rule and protections against other permeations of abusive loans,” said Seema Agnani, Executive Director, National Coalition for Asian Pacific American Community Development (National CAPACD)

Background

At the heart of the CFPB rule is the common sense principle that lenders check a borrower’s ability to repay before lending money. In a recent poll of likely voters, more than 70% of Republicans, Independents, and Democrats support this idea. This requirement ensures that loans are affordable, meaning a borrower can repay without reborrowing and without defaulting on other expenses.

Currently, the debt trap is the cornerstone of the payday lending business model – three quarters of all payday loan fees are from borrowers with more than ten loans in the course of a year. The ability-to-pay requirement is a straightforward way to prevent this vicious cycle of debt and support lenders with legitimate business models.

Payday lenders have anticipated possible crackdowns on their abusive practices and begun morphing their business plans toward other schemes in order to evade the law, such as offering predatory long-term loans. Despite important progress with today’s announcement, the struggle for financial fairness will continue.